Exhibit 2.1
--------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
By and Among
NATROL, INC.
and
Xxxxxx X. Xxxxx
Xxxx Xxxx Xxxxx
Xxxxxx Xxxx
Xxxxxx X. Xxxxxxxx, Xx.
and
PROLAB NUTRITION, INC.
TABLE OF CONTENTS
Page
ARTICLE I. PURCHASE AND SALE OF SHARES...........................................................................1
Section 1.01. Purchase and Sale of Shares..............................................................1
Section 1.02. Total Purchase Price.....................................................................2
Section 1.03. Closing Financial Statements; Total Purchase Price Adjustment............................3
Section 1.04. Closing..................................................................................3
Section 1.05. Closing Deliveries.......................................................................4
Section 1.06. Stockholders' Representative.............................................................5
Section 1.07. Further Assurances.......................................................................7
Section 1.08. Transfer Taxes...........................................................................7
ARTICLE II. NON-COMPETITION; POST-CLOSING EMPLOYMENT.............................................................7
Section 2.01. Non-Competition Agreement.................................................................7
Section 2.02. Post-Closing Employment...................................................................7
Section 2.03. Options...................................................................................7
ARTICLE III. REPRESENTATION AND WARRANTIES OF THE STOCKHOLDERS...................................................8
Section 3.01. Making of Representations and Warranties..................................................8
Section 3.02. Ownership of Capital Stock................................................................8
Section 3.03. Authority of Stockholders.................................................................9
Section 3.04. Organization, Existence and Authority.....................................................9
Section 3.05. Capitalization...........................................................................10
Section 3.06. Subsidiaries; Investments................................................................11
Section 3.07. Financial Statements.....................................................................11
Section 3.08. Absence of Undisclosed Liabilities.......................................................11
Section 3.09. Absence of Certain Developments..........................................................12
Section 3.10. Accounts Receivable......................................................................12
Section 3.11. Transactions with Affiliates.............................................................12
Section 3.12. Title to Properties......................................................................13
Section 3.13. Tax Matters..............................................................................14
Section 3.14. Contracts and Commitments................................................................15
Section 3.15. Intellectual Property Rights.............................................................16
Section 3.16. Litigation...............................................................................18
Section 3.17. Permits; Compliance with Laws............................................................18
Section 3.18. Inventories..............................................................................19
Section 3.19. Labor Laws...............................................................................19
Section 3.20. Information Supplied to Natrol...........................................................20
Section 3.21. Investment Banking; Brokerage............................................................20
(i)
Section 3.22. Employee Benefit Programs................................................................21
Section 3.23. Environmental Matters....................................................................23
Section 3.24. Insurance................................................................................24
Section 3.25. Relationship with Customers and Suppliers................................................24
Section 3.26. Investment Representations...............................................................25
Section 3.27. Corporate Records; Copies of Documents...................................................26
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF NATROL............................................................26
Section 4.01. Making of Representations and Warranties.................................................26
Section 4.02. Organization and Corporate Power.........................................................26
Section 4.03. Authority................................................................................27
Section 4.04. Investment Banking; Brokerage............................................................27
ARTICLE V. SURVIVAL; INDEMNIFICATION............................................................................27
Section 5.01. Survival of Representations, Warranties, Etc.............................................27
Section 5.02. Indemnification by the Stockholders......................................................28
Section 5.03. Limitations on Indemnification by Stockholders...........................................29
Section 5.04. Indemnification by Natrol. .............................................................30
Section 5.05. Limitations on Indemnification by Natrol.................................................31
Section 5.06. Notice; Defense of Claims................................................................31
Section 5.07. Recoveries...............................................................................33
Section 5.08. Satisfaction of Stockholder Indemnification Obligations. ...............................33
ARTICLE VI. MISCELLANEOUS.......................................................................................33
Section 6.01. Law Governing............................................................................33
Section 6.02. Notices..................................................................................33
Section 6.03. Prior Agreements Superseded..............................................................34
Section 6.04. Assignability............................................................................34
Section 6.05. Fees and Expenses........................................................................34
Section 6.06. Publicity and Disclosures................................................................35
Section 6.07. Captions and Gender......................................................................35
Section 6.08. Execution in Counterparts................................................................35
Section 6.09. Certain Remedies; Severability...........................................................35
Section 6.10. Amendments; Waivers......................................................................35
(ii)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made as of this 8th day of October,
1999, by and among Natrol, Inc., a Delaware corporation ("Natrol"), and Xxxxxx
X. Xxxxx ("Xx. Xxxxx"), Xxxx Xxxx Xxxxx ("Xx. Xxxxx"), Xxxxxx Xxxx ("Xx. Xxxx")
and Xxxxxx X. Xxxxxxxx, Xx. (Xx. Xxxxxxxx") (Xx. Xxxxx, Xx. Xxxxx, Xx. Xxxx and
Xx. Xxxxxxxx are sometimes referred to herein individually as a "Stockholder"
and collectively as the "Stockholders") and PROLAB Nutrition, Inc., a
Connecticut corporation ("Prolab").
W I T N E S S E T H
WHEREAS, Prolab is in the business of marketing and supplying
sports-related dietary supplements and other health and nutrition products to
its customers (the "Business");
WHEREAS, the Stockholders are each the record and beneficial owners of
the number of shares, of any series, of common stock, no par value, of Prolab
set forth opposite their names on the attached Exhibit A (the "Shares");
WHEREAS, the Shares represent all of the issued and outstanding capital
stock of the Prolab;
WHEREAS, the Stockholders desire to sell to Natrol, and Natrol desires
to purchase from the Stockholders, the Shares, subject to the terms and
conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I. PURCHASE AND SALE OF SHARES.
SECTION 1.01. PURCHASE AND SALE OF SHARES. Subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants herein set forth, Natrol hereby agrees to purchase from the
Stockholders, and the Stockholders hereby agree to sell and deliver to Natrol,
at the Closing (as hereinafter defined in Section 1.04 hereof), the Shares, free
and clear of any and all liens, claims, options, charges, encumbrances, rights
or restrictions of any nature ("Claims"). At the Closing, the Stockholders shall
deliver or cause to be delivered to Natrol certificates representing all of the
Shares. Such stock certificates shall be duly endorsed in blank for transfer or
shall be presented with stock powers duly executed in blank, with such signature
guarantees and such other documents as may be reasonably required by Natrol to
effect a valid transfer of such Shares by the Stockholders, free and clear of
any and all Claims.
1
SECTION 1.02. TOTAL PURCHASE PRICE.
(a) In consideration of the sale by the Stockholders to Natrol
of the Shares and in reliance upon the representations and warranties of the
Stockholders herein contained and the other terms and conditions hereof and
subject to the satisfaction of all of the conditions contained herein, Natrol
agrees to pay to the Stockholders, at the times set forth herein, a total
aggregate consideration (the "Total Purchase Price"), which shall be allocated
among the Stockholders on a pro rata basis as set forth on SCHEDULE 1.02, equal
to Thirty Million Dollars ($30,000,000) minus the Adjustment Amount, if any, to
be determined and paid in accordance with Section 1.03. The Total Purchase Price
shall be satisfied by delivery by Natrol to the Stockholders (allocated among
the Stockholders on a pro rata basis as set forth on Schedule 1.02) of: (a)
Twenty Nine Million Dollars ($29,000,000) (the "Cash Payment") and (b) 124,270
shares of common stock, par value $.01 per share, of Natrol ("Natrol Common
Stock") (the "Stock Payment").
(b) The Cash Payment shall be paid by Natrol at the Closing.
The Stock Payment shall be held by Natrol as security in favor of Natrol for,
and shall be reduced to the extent of, all Losses (as defined in Section 5.02
hereof) incurred by Prolab as a result of: (i) the litigation styled as PROLAB
NUTRITION, INC. V. BASIC RESEARCH, LLC, ET AL., Case No. C2 99- 396, now pending
in the Federal District Court for the Southern District of Ohio (the "Current
Lawsuit"); (ii) any Action or potential Action between one or more of the
parties to the Current Lawsuit and/or any related or affiliated parties or
governmental entity arising out of or relating to the general state of facts
alleged in the Current Lawsuit (collectively with the Current Lawsuit the "Basic
Litigation"); and (iii) the patent/trademark dispute between Prolab, Ergogenix,
LLC, Brink Training Systems and others described in Section 3.15 of the
Disclosure Schedule (the "Patent Dispute"). Within ten (10) days following the
last to occur of: (i) the date on which the Basic Litigation has been fully and
finally resolved, by settlement between the parties, arbitration, court order
(once all periods for appeal have expired) or otherwise; or (ii) the date on
which the Patent Dispute is fully and finally resolved to the reasonable
satisfaction of Natrol, Natrol shall issue or cause to be issued to the
Stockholders (allocated among among the Stockholders on a pro rata basis as set
forth on Schedule 1.02) that number of shares of Natrol Common Stock, if any,
equal to (A) the Stock Payment less (B) that number of whole shares of Natrol
Common Stock equal to the quotient of all Losses incurred by any Buyer
Indemnified Party subsequent to the Closing Date in respect of the Basic
Litigation and the Patent Dispute divided by $8.047 (as adjusted from time to
time to reflect any stock dividend, stock split, reverse stock split,
combination, recapitalization, reclassification or similar event affecting
shares of Natrol Common Stock). In the event the Stock Payment held as security
by Natrol is insufficient to compensate the Buyer Indemnified Parties for such
Losses, the Stockholders shall be jointly and severally liable for, and shall
promptly pay, any deficiency to such Buyer Indemnified Parties. In the event
that payment of such a deficiency is due from the Stockholders but is not paid,
such obligation may be satisfied by set-off against any amounts payable to any
Stockholder pursuant to this Agreement or
2
otherwise. For purposes hereof, the term "Action" shall mean any counterclaim,
crossclaim or other action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, arbitration tribunal or governmental
entity.
SECTION 1.03. CLOSING FINANCIAL STATEMENTS; TOTAL PURCHASE
PRICE ADJUSTMENT.
(a) Prior to the execution of this Agreement the Stockholders
have engaged the public accounting firm of Sansiveri, Kimball & XxXxxxx LLP to
conduct an audit in accordance with generally accepted auditing standards ( the
"Audit") of the financial statements of Prolab for the year ended December 31,
1998, and for the period beginning January 1, 1999 and ending on the Closing
Date ( the "Current Stub Period") ( the "Closing Date Financial Statements"),
which financial statements are to be prepared in accordance with generally
accepted accounting principles and practices, applied consistently with past
reporting periods of Prolab ("GAAP"). In connection with the Audit and the
preparation of the balance sheet included in the Closing Date Financial
Statements ( the "Closing Balance Sheet"), promptly following the Closing Natrol
shall cause to be conducted a physical count and valuation of the inventory of
Prolab, using a valuation method consistent with GAAP. Such physical count shall
take place on not less than five business days notice to the Stockholders, and
the Stockholders shall be entitled to be present. The results of the physical
count and valuation shall, in the absence of manifest error, be final and
binding on the parties. As soon as practicable following the Closing but in any
event by the later of 75 days following the Closing Date or 10 days following
completion of the Audit, Natrol shall deliver to the Stockholders the audited
financial statements, including the Closing Date Balance Sheet, together with a
calculation of the Adjustment Amount. The "Adjustment Amount" shall be the
amount (if any) by which the Net Tangible Assets (as defined below) of Prolab,
as shown on the Closing Balance Sheet, are less than the sum of Three Million,
Two Hundred Fifty Thousand Dollars ($3,250,000). On the basis of the Closing
Balance Sheet, the Adjustment Amount shall reduce the Total Purchase Price and
the Stockholders shall, on a joint and several basis, make prompt payment to
Natrol of the Adjustment Amount. In the event that an Adjustment Amount is due
from the Stockholders but is not paid, such obligation may be satisfied by
set-off against any amounts payable to any Stockholder by Natrol pursuant to
this Agreement or otherwise.
(b) For purposes of this Section 1.03, "Net Tangible Assets"
shall mean Tangible Assets of Prolab, less total liabilities, and "Tangible
Assets" shall mean total assets of Prolab less goodwill and general intangibles,
in each case as reflected on either the Estimated Closing Balance Sheet or the
Closing Balance Sheet, as the case may be, and determined in accordance with
GAAP.
SECTION 1.04. CLOSING. The transactions contemplated by this Agreement
shall be consummated at the closing (the "Closing") which will take place at the
offices of Xxxxxxx, Procter & Xxxx LLP, Exchange Place, Boston, Massachusetts on
October 8, 1999.
3
Notwithstanding the foregoing, the Closing may take place at such other place,
time or date as may be mutually agreed upon in writing by the Stockholders and
Natrol. The date of the Closing is referred to herein as the "Closing Date."
SECTION 1.05. CLOSING DELIVERIES.
(a) DELIVERIES OF PROLAB AND THE STOCKHOLDERS. At the Closing,
or in the case of item (i) below, at least five (5) and not more than seven (7)
business days prior to the Closing Date, the Stockholders shall deliver or cause
to be delivered, unless any such delivery shall be waived by Natrol in writing,
the following:
(i) a letter from the auditors engaged by Prolab to
audit its financial statements for the year ended December 31, 1998 and
the Current Stub Period to the effect that such firm: (x) has had no
indication from its audit activities to the date of such letter of a
significant discrepancy in the financial statements contained in
Section 3.07 of the Disclosure Schedule (as defined below); and (y) has
found no reason to conclude that such statements will not be fully
auditable by such firm within sixty (60) days after the Closing Date.
(ii) stock certificates representing all of the
outstanding shares of capital stock of Prolab properly endorsed;
(iii)Non-competition Agreements (as defined in
Section 2.01) properly executed by Messrs. Xxxxx, Xxxxx and Xxxxxxxx;
(iv) resignations of Messrs Roark, Morin, Xxxxxxxx
and Xxxx from their positions as Directors of Prolab and all corporate
offices held by them with Prolab;
(v) a General Release duly executed by each of the
Stockholders in the form of EXHIBIT 1.05A attached hereto;
(vi) memorandum of Action of Board of Directors and
all Stockholders of Prolab: (A) approving and ratifying all provisions
of this Agreement and authorizing the Closing: and (B) canceling all
obligations and waiving all rights of the parties to that certain
Stockholders Agreement dated March 12, 1999 among Prolab and its
stockholders;
(vii) evidence satisfactory to Natrol and its counsel
of the repayment to Prolab of any outstanding loans or advances made by
Prolab to any Stockholder or affiliate of any Stockholder, including a
promissory note of Xxxxxx X. Xxxxx dated August 27, 1999 in the
principal amount of $500,000; and
4
(viii) evidence satisfactory to Natrol and its
counsel that all of the Recommendations contained in Section VII.B of
the Phase I Environmental Site Assessment Report issued on June 16,
1997 by HRP Associates, Inc., in respect of 00 Xxxxxxx Xxxxx,
Xxxxxxxxxx, XX 00000, have been adopted by Prolab.
(b) DELIVERIES OF NATROL. At the Closing, Natrol shall deliver
or cause to be delivered, unless any such delivery shall be waived by the
Stockholders in writing, wire transfers in immediately available funds to one or
more bank accounts designated in writing by the Stockholders, in the aggregate
amount equal to the Cash Payment, and in the amounts set forth on Schedule 1.02.
SECTION 1.06. STOCKHOLDERS' REPRESENTATIVE.
(a) By the execution and delivery of this Agreement and by
their act of surrendering certificates representing their Shares pursuant to
this Agreement, each of the Stockholders hereby irrevocably constitutes and
appoints, for the period beginning on the date hereof and ending on the later of
the third anniversary of this Agreement or date on which all indemnity claims
under Article V hereof are finally settled, Xx. Xxxxx, his or her true and
lawful agent and attorney-in-fact (the "Representative"), with full power of
substitution, subject to the terms of the Representative Agreement dated of even
date herewith among the Stockholders and the Representative and attached hereto
as EXHIBIT 1.06(A), to act in his name, place and xxxxx with respect to all
transactions contemplated by and all terms and provisions of this Agreement, and
to act on his behalf in any dispute, litigation or arbitration involving this
Agreement, and to do or refrain from doing all such further acts and things, and
execute all such documents as the Representative shall deem necessary or
appropriate in connection with the transactions contemplated by this Agreement,
including, without limitation, the power:
(i) to waive any condition to the obligations of the
Stockholders to consummate the transactions contemplated by this
Agreement, PROVIDED, HOWEVER, that if the waiver of any condition could
have a Material Adverse Effect (as defined in Section 3.01) on the
Stockholders, such waiver must be approved by a majority in interest of
the Stockholders;
(ii) to act for the Stockholders with regard to
matters pertaining to indemnification referred to in this Agreement and
adjustments pursuant to Section 1.03, including the power to compromise
any claim on behalf of the Stockholders;
(iii) to do or refrain from doing any further act or
deed on behalf of the Stockholders which the Representative deems
necessary or appropriate in his sole discretion relating to the subject
matter of this Agreement, as fully and completely as each Stockholder
could do if personally present; and
5
(iv) to deliver all ancillary agreements,
certificates and documents and to receive all notices and service of
process on behalf of the Stockholders in connection with any claims or
matters under this Agreement (and the Representative agrees to deliver
copies of all such notices and service of process to the Stockholders).
(b) If Xx. Xxxxx dies or otherwise becomes incapacitated and
unable to serve as Representative, or is unwilling to serve as Representative,
then a new Representative shall be selected by the affirmative vote of a
majority in interest of the Stockholders to serve as the new Representative. The
appointment of the Representative shall be deemed coupled with an interest and
shall be irrevocable, and Natrol and Prolab and any other person may
conclusively and absolutely rely, without inquiry, upon any action of the
Representative on behalf of the Stockholders in all matters referred to herein.
All notices delivered by Natrol or Prolab to the Representative (whether
pursuant hereto or otherwise) for the benefit of the Stockholders shall
constitute notice by Natrol or Prolab to the Stockholders. The Representative
shall act for the Stockholders on all of the matters set forth in this Agreement
in the manner the Representative believes to be in the best interest of the
Stockholders and consistent with his obligations under this Agreement, but the
Representative shall not be responsible to the Stockholders for any loss or
damages the Stockholders may suffer by reason of the performance by the
Representative of his duties under this Agreement, other than loss or damage
arising from willful violation of the law or gross negligence in the performance
of his duties under this Agreement.
The Stockholders agree to indemnify and hold harmless the
Representative from and against any and all expenses (including attorneys'
fees), judgments fines or other damages incurred by him in connection with,
arising from or relating to the performance of his duties as Representative
hereunder, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Stockholders and, with respect
to any criminal action or proceeding, had no reasonable belief his conduct was
unlawful. Natrol and Prolab agree that the Stockholders may so indemnify the
Representative.
(c) All actions, decisions and instructions of the
Representative taken, made or given pursuant to the authority granted to the
Representative pursuant to paragraph (a) above shall be conclusive and binding
upon all of the Stockholders and no Stockholder shall have the right to object,
dissent, protest or otherwise contest the same. Natrol and Prolab hereby
acknowledge that the Representative may with respect to any particular action,
decision or instruction solicit the consent of the Stockholders before acting.
(d) The provisions of this Section 1.06 are independent and
severable, shall constitute an irrevocable power of attorney, coupled with an
interest and surviving death or dissolutions, granted by the Stockholders to the
Representative and shall be binding upon the executors, heirs, legal
representatives, successors and assigns of each such Stockholder.
6
(e) Natrol and Prolab shall be entitled to rely conclusively
on the instructions and decisions of the Representative as to any actions
required or permitted to be taken by the Stockholders or the Representative
hereunder, and no party hereunder shall have any cause of action against Natrol
and Prolab for any action taken by Natrol or Prolab in reliance upon the
instructions or decisions of the Representative.
SECTION 1.07. FURTHER ASSURANCES. The Stockholders and the
Representative from time to time after the Closing at the request of Natrol and
without further consideration shall execute and deliver further instruments of
transfer and assignment and take such other action as Natrol may reasonably
require to more effectively transfer and assign to, and vest in, Natrol the
Shares free and clear of any and all Claims and all rights thereto, and to fully
implement the provisions of this Agreement.
SECTION 1.08. TRANSFER TAXES. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the Shares
under this Agreement will be borne and paid by the Stockholders, and the
Stockholders shall promptly reimburse Prolab and Natrol for any such tax, fee or
duty which it is required to pay under applicable law.
ARTICLE II. NON-COMPETITION; POST-CLOSING EMPLOYMENT.
SECTION 2.01. NON-COMPETITION AGREEMENT. As a material inducement to
and a condition precedent of Natrol's purchase of the Shares, and associated
goodwill, and in consideration of the payment by Natrol to the Stockholders of
their pro rata portion of the Total Purchase Price and in consideration of their
continued employment by Prolab following the Closing as provided for herein,
each of Xx. Xxxxx, Xx. Xxxxx and Xx. Xxxxxxxx shall execute and deliver on the
Closing Date a Non-Competition Agreement in the form of EXHIBIT 2.01 attached
hereto (the "Non-Competition Agreement") providing for a period of
non-competition of five (5) years.
SECTION 2.02. POST-CLOSING EMPLOYMENT. Natrol shall cause Prolab to
employ Messrs. Xxxxx, Xxxxx and Xxxxxxxx commencing on the day following the
Closing Date on an at will basis, at the base compensation and with the bonus
arrangements as are set forth on the attached Schedule 2.02.
SECTION 2.03. OPTIONS. Promptly upon being notified by the
Representative, on or after the Closing, of the recipients and their respective
allotments, Natrol shall deliver duly executed option agreements pursuant to
Natrol's then active stock option plan granting options (vesting in equal
quarterly installments over a three year period) to purchase a total of 500,000
shares of common stock, par value $0.01 per share, of Natrol, to the persons,
and in the respective allotments, identified by the Representative. Optionees
shall execute and deliver option agreements in a form customarily used by
Natrol.
7
ARTICLE III. REPRESENTATION AND WARRANTIES OF THE STOCKHOLDERS.
SECTION 3.01. MAKING OF REPRESENTATIONS AND WARRANTIES. As a material
inducement to Natrol to enter into this Agreement and consummate the
transactions contemplated hereby, and notwithstanding any investigation made by
Natrol, Prolab and each of the Stockholders hereby jointly and severally make to
Natrol the representations and warranties contained in this Article III, except
that the representations and warranties in Section 3.02 and 3.03 are made
severally by each Stockholder as to himself. For purposes of this Agreement,
references to a "Person" shall mean an individual, a corporation, an
association, an estate, a trust, a partnership or any other entity or
organization.
For purposes of this Agreement, references to the "knowledge" or "best
knowledge" of, or "known" to, a Stockholder or Prolab, or words of similar
meaning shall mean and be limited to such knowledge as any of the Subject
Persons (as defined below) actually has or reasonably ought to have in the
prudent exercise of his or her duties and responsibilities, it being understood
that the following principles shall apply to the application of this definition:
(a) any matters set forth in a written document received, sent
or acknowledged by any of Prolab or any Subject Person shall be deemed known
whether or not any Subject Person has conscious knowledge of such matter;
(b) any matter known to counsel to, independent accountants
for or other advisors of any Stockholder shall be deemed known whether or not
any Subject Person has conscious knowledge of such matter; and
(c) the term "Subject Persons" means each of the following:
(x) the Stockholders and (y) the senior executive officers and all other Persons
named on Section 3.01 of the Disclosure Schedule hereto.
For purposes of this Agreement, references to "Material Adverse Effect"
shall mean a material adverse effect on the properties, assets, business,
condition (financial or otherwise), total surplus, results of operations or
prospects of Prolab.
SECTION 3.02. OWNERSHIP OF CAPITAL STOCK. Each Stockholder owns
beneficially and of record the respective number of the Shares listed opposite
such Stockholder's name on SCHEDULE 1.02 hereto, free and clear of any and all
Claims. Upon delivery to Natrol at the Closing of the certificates representing
the Shares owned by such Stockholder duly endorsed in blank for transfer or with
stock powers attached duly executed in blank, against delivery of the purchase
price therefor, good and valid title thereto shall be transferred to Natrol,
free and clear of any and all Claims.
8
SECTION 3.03. AUTHORITY OF STOCKHOLDERS.
(a) Each Stockholder has full authority, power and capacity to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of such Stockholder pursuant to or as
contemplated by this Agreement and to carry out the transactions contemplated
hereby and thereby. This Agreement and each agreement, document and instrument
to be executed and delivered by such Stockholder or pursuant to or as
contemplated by this Agreement constitute, or when executed and delivered by
such Stockholder will constitute, valid and binding obligations of such
Stockholder enforceable in accordance with their respective terms except as such
enforceability may be limited by principles of equity with respect to specific
performance, injunctive relief and other equitable remedies.
(b) The execution, delivery and performance by such
Stockholder of this Agreement and each such agreement, document and instrument:
(i) do not and will not violate any laws, rules or
regulations of the United States or any state or other jurisdiction
applicable to such Stockholder, or require such Stockholder to obtain
any approval, consent or waiver of, or to make any filing with, any
Person (governmental or otherwise) that has not been obtained or made;
and
(ii) do not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give
rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which such Stockholder is
a party or by which the property of such Stockholder is bound or
affected, or result in the creation or imposition of any mortgage,
pledge, lien, security interest or other charge or encumbrance on any
of the assets or properties of such Stockholder.
SECTION 3.04. ORGANIZATION, EXISTENCE AND AUTHORITY.
(a) Prolab is a corporation duly organized, validly existing
and in good standing under the laws of the State of Connecticut, and is duly
qualified or registered as a foreign corporation (i) in each jurisdiction listed
in Section 3.04 of the Disclosure Schedule delivered by the Stockholders under
this Agreement (the "Disclosure Schedule") or (ii) in which Prolab is required
to be licensed or qualified to conduct its business or own its properties,
except where the failure to so qualify or register would not have a Material
Adverse Effect on Prolab. Prolab has all requisite corporate power and
authority, and all material and necessary authorizations, approvals, orders,
licenses, certificates and permits to conduct its Business. True and complete
copies of the articles of incorporation or equivalent
9
charter document and by-laws of Prolab has previously been delivered to Natrol.
Prolab is not in violation of any term of its articles of incorporation and
by-laws.
(b) Prolab has full corporate power and authority to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by or on its behalf pursuant to or as contemplated by this
Agreement and to carry out the transactions contemplated hereby and thereby.
This Agreement and each agreement, document and instrument to be executed and
delivered by any of Prolab pursuant to or as contemplated by this Agreement
constitute, or when executed and delivered by Prolab will constitute, its valid
and binding obligation enforceable in accordance with their respective terms.
The execution, delivery and performance by the Stockholders and Prolab of this
Agreement and each agreement, document and instrument to be executed and
delivered by any of them pursuant to this Agreement and the transactions
contemplated hereby and thereby:
(i) do not and will not violate the articles of
incorporation or by-laws of any of Prolab or any laws, rules or
regulations of the United States or any state or other jurisdiction
applicable to Prolab, or require Prolab to obtain any approval, consent
or waiver of, or to make any filing with, any Person (governmental or
otherwise), including without limitation any state insurance or similar
regulatory authority, that has not been obtained or made; and
(ii) do not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give
rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which any of Prolab is a
party or by which the property of any of Prolab is bound or affected,
or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets
or properties of any of Prolab.
SECTION 3.05. CAPITALIZATION.
(a) Section 3.05 of the Disclosure Schedule sets forth the
authorized capital stock of each of Prolab and the number of issued and
outstanding shares of Common Stock of Prolab, all of which shares are duly and
validly issued, fully paid and nonassessable, were issued in compliance with all
applicable state and federal securities laws and are owned beneficially and of
record by the Stockholders as indicated in Section 3.05 of the Disclosure
Schedule. No shares of capital stock of any of Prolab are held in its treasury.
Except as set forth in Section 3.05 of the Disclosure Schedule, (i) there are no
outstanding subscriptions, options, warrants, commitments, agreements,
arrangements or commitments of any kind for or relating to the issuance, or sale
of, or outstanding securities convertible into or exchangeable for, any shares
of capital stock of any class or other equity interests of Prolab; (ii) no
person
10
has any preemptive right, right of first refusal or similar right to acquire the
Shares, any other shares of capital stock of Prolab, in connection with the
transactions contemplated by this Agreement or otherwise; (iii) there are no
restrictions on the transfer of any shares of capital stock of Prolab, other
than those imposed by relevant state and federal securities laws; (iv) no person
has any right to cause Prolab thereof to effect the registration under the
Securities Act of 1933, as amended, of any shares of its capital stock or any
other securities (including debt securities); (v) Prolab does not have an
obligation to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein, or to pay any dividend or make any other distribution
in respect thereto; and (vi) there are no voting trusts, stockholders'
agreements, or proxies relating to any securities of Prolab.
SECTION 3.06. SUBSIDIARIES; INVESTMENTS. A complete and correct list of
all of the direct and indirect Subsidiaries of Prolab is set forth in Section
3.06 of the Disclosure Schedule. All of the outstanding shares of capital stock
of each Subsidiary are duly authorized, validly issued, fully paid and
nonassessable and all of such shares or other equity interest are owned
beneficially and of record by the Company or Companies indicated in Section 3.06
of the Disclosure Schedule, free and clear of any and all Claims. Except as set
forth in Section 3.06 of the Disclosure Schedule, none of Prolab owns or has any
direct or indirect interest in or control over any corporation, partnership,
joint venture or other entity of any kind. For purposes hereof, the term
"Subsidiary" means, with respect to any Person, any corporation more than 50% of
the outstanding voting securities of which, or any partnership, joint venture or
other entity more than 50% of the total equity interest of which, is directly or
indirectly owned by such Person.
SECTION 3.07. FINANCIAL STATEMENTS. Included in Section 3.07 of the
Disclosure Schedule are the following financial statements of Prolab, all of
which statements (including the footnotes and schedules thereto) were prepared
from the books and records of Prolab in accordance with GAAP (except for the
absence of some or all footnotes required by GAAP) and fairly present the
financial position of Prolab on the dates of such statements and its results of
operations for the periods covered thereby: (i) unaudited balance sheet,
statement of income and retained earnings and statement of cash flows as at
December 31, 1996, December 31, 1997 and December 31, 1998, and (ii) unaudited
balance sheet, statement of income and retained earnings and statement of cash
flows as at August 31, 1999 and statements of operations and cash flows for the
eight-month period then ended (the "Base Balance Sheet").
SECTION 3.08. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed
in Section 3.08 of the Disclosure Schedule and to the extent reflected or
reserved against in the Base Balance Sheet, Prolab has no liabilities or
obligations of any kind or nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, except liabilities (i) set forth in the
Disclosure Schedule, (ii) incurred in the ordinary course of business since the
date of the Base Balance Sheet consistent with the terms of this Agreement or,
(iii) for the performance of obligations under contracts entered into in the
ordinary course of business.
11
SECTION 3.09. ABSENCE OF CERTAIN DEVELOPMENTS. Since December 31, 1998,
Prolab has conducted its business only in the ordinary course consistent with
past practice and, except as set forth in Section 3.09 of the Disclosure
Schedule, there has been: (i) no change in the condition, financial or
otherwise, of Prolab or in the assets, liabilities, properties or business of
Prolab which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has had a Material
Adverse Effect; (ii) no mortgage, encumbrance or lien placed on any of the
properties of Prolab or any of its Subsidiaries; (iii) no declaration, setting
aside or payment of any dividend or other distribution with respect to, or any
direct or indirect redemption or acquisition of, any shares of any capital stock
of any class of Prolab or any options, warrants or other rights to acquire, or
securities convertible into or exchangeable for, any such capital stock; (iv) no
waiver or cancellation of any debt or claim held by Prolab; (v) no incurrence or
modification of any contingent liability with respect to the obligations of
others, and no incurrence or modification of any other contingent or fixed
obligations or liabilities except in the ordinary course of business and
consistently with past practices; (vi) no increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee, agent or
stockholder other than salary increases in the ordinary course of business
consistent with past practice; (vii) no material loss, destruction or damage to
any property of Prolab, whether or not insured; (viii) no notice of any claim of
unfair labor practices or labor dispute or work stoppage involving Prolab and no
change in senior executives of Prolab or; (ix) no acquisition or disposition of
any assets (or any contract or arrangement therefor) nor any other transaction
by Prolab other than in the ordinary course of business; (x) no obligation or
liability incurred by Prolab to any of their respective officers, directors,
stockholder or employees, or any loans or advances made by Prolab to any of
their respective officers, directors, stockholders or employees, except normal
compensation and expense allowances payable to officers or employees; (xi) no
change in accounting methods or practices, credit practices or collection
policies used by Prolab; and (xii) no agreement or understanding whether in
writing or otherwise, that would result in any of the transactions or events or
require Prolab to take any of the actions specified in paragraphs (i) through
(xi) above.
SECTION 3.10. ACCOUNTS RECEIVABLE. Except to the extent reserved
against in the Base Balance Sheet, all of the accounts receivable of Prolab are
valid and enforceable claims, are subject to no set-off or counterclaim, and are
fully collectable in ninety (90) days, except for receivables due from GND and
AAFES, which shall be collectable in the normal course of business, after
deducting the allowance for doubtful accounts stated in the Base Balance Sheet
and adjusted since the date thereof in accordance with GAAP.
SECTION 3.11. TRANSACTIONS WITH AFFILIATES. Except as set forth in
Section 3.11 of the Disclosure Schedule, there are no loans, leases or other
continuing transactions between Prolab and any present or former stockholder,
director or officer of Prolab, or any member of such officer's, director's or
stockholder's immediate family, or any person controlled by such officer,
director or stockholder or his or her immediate family. Except as set forth in
12
Section 3.11 of the Disclosure Schedule, no stockholder, director or officer of
Prolab nor any of their respective spouses or family members, owns directly or
indirectly on an individual or joint basis any material interest in, or serves
as an officer or director or in another similar capacity of, any competitor or
supplier of Prolab, or any organization which has a material contract or
arrangement with Prolab.
SECTION 3.12. TITLE TO PROPERTIES.
(a) TITLE. Except as set forth in Section 3.12(a) of the
Disclosure Schedule, Prolab has good and valid title to all of its properties
and assets reflected on the applicable Base Balance Sheet or acquired
thereafter, free and clear of all mortgages, security interests, liens,
restrictions or encumbrances except for (i) those restrictions and encumbrances
which do not individually or in the aggregate materially interfere with, or
restrict, the use and operation of said properties and assets as the same are
currently used and operated and (ii) those liens that arise by operation of law
to secure the payment of applicable ad valorem and/or personal taxes. All
equipment included in such properties which is necessary to the business of
Prolab is in good condition and repair (ordinary wear and tear excepted) and all
leases of real or personal property to which Prolab or its Subsidiaries is a
party are fully effective and afford such company peaceful and undisturbed
possession of the subject matter of the lease.
(b) CONSENTS. Except as set forth in Disclosure Schedule
Section 3.12(b), no consent or approval is required with respect to the
transactions contemplated by this Agreement from the other parties to any lease
of real or personal property, or from any regulatory authority, no filing with
any regulatory authority is required in connection therewith, and to the extent
that any such consents, approvals or filings are required, Prolab or the
Stockholders will obtain or complete them before the Closing.
(c) COMPLIANCE WITH LAW. Prolab has not received any notice
from any governmental authority of any violation of any law, ordinance,
regulation, license, permit or authorization issued with respect to any owned or
leased real property that has not been heretofore corrected and no such
violation exists which could have a Material Adverse Effect except as set forth
in Section 3.12(c) of the Disclosure Schedule. All improvements located on or
constituting part of the owned or leased real property and their use and
operation by Prolab were and are now in compliance in all respects with all
applicable laws, ordinances, regulations, licenses, permits and authorizations,
expect as set forth in Section 3.12(c) of the Disclosure Schedule. No approval
or consent to the transactions contemplated by this Agreement is required of any
governmental authority with jurisdiction over any aspect of the owned or leased
real property or its use or operations. Prolab has not received any notice of
any real estate tax deficiency or assessment nor is aware of any proposed
deficiency, claim or assessment with respect to any of the owned or leased real
property, or any pending or threatened condemnation thereof.
13
(d) CONDITION OF OWNED REAL PROPERTY. Except as set forth in
Section 3.12(d) of the Disclosure Schedule, there are no material defects in the
physical condition of any land, buildings or improvements owned by Prolab,
including without limitation, structural elements, mechanical systems, parking
and loading areas, and all such buildings and improvements are in good operating
condition and repair, have been well maintained. To the Knowledge of Prolab and
the Stockholders, none of the property owned by Prolab is located in an area
designated by any governmental authority as being within a flood plain or
subject to special flood or other hazards. Access to the property owned by
Prolab is by a public way or public street. To the Knowledge of Prolab and the
Stockholders, all water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned operation of
the real property leased by Prolab have been connected under valid permits and
pursuant to valid easements where required, and are sufficient to service the
property owned by Prolab and are in good operating condition.
SECTION 3.13. TAX MATTERS. Prolab has filed all federal, state, local
and foreign tax returns required to be filed by it through the date hereof, and
has paid or caused to be paid all federal, state, local, foreign, and other
taxes, including without limitation income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, premium taxes, gross receipts taxes, franchise taxes,
employment and payroll-related taxes, withholding taxes, stamp taxes, transfer
taxes, and property taxes, whether or not measured in whole or in part by net
income, (collectively, "Taxes"), required to be paid by it through the date
hereof whether disputed or not, except taxes which have not yet accrued or
otherwise become due, for which adequate provision has been made in the
pertinent financial statements referred to in Section 3.07 above. The provisions
for taxes on the Base Balance Sheet are sufficient as of the date thereof for
the payment of all accrued and unpaid Taxes of any nature of Prolab, and any
applicable Taxes owing by it to any foreign jurisdiction, whether or not
assessed or disputed. All Taxes and other assessments and levies which Prolab,
is required to withhold or collect have been withheld and collected and have
been paid over to the proper governmental authorities except where the failure
to withhold or collect and pay over would not have a Material Adverse Effect on
Prolab. Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, is threatening to assert against Prolab any
deficiency or claim for additional Taxes. Except as set forth in Section 3.13 of
the Disclosure Schedule, there has not been any audit of any tax return filed by
Prolab or any of its Subsidiaries. Except as set forth in Section 3.13 of the
Disclosure Schedule, no waiver or agreement by Prolab. Except as set forth in
Section 3.13 of the Disclosure Schedule, no claim has ever been made by an
authority in a jurisdiction where Prolab does not file tax returns that any of
them is or may be subject to taxation by that jurisdiction. Except as set forth
in Section 3.13 of the Disclosure Schedule, there are no security interests on
any of the assets of Prolab that arose in connection with any failure (or
alleged failure) to pay any Tax.
Section 3.13 of the Disclosure Schedule lists all federal, state,
local, and foreign income tax returns (including all schedules and attachments)
filed with respect to Prolab or any
14
of its Subsidiaries for taxable periods ended on or after December 31, 1994.
Prolab has delivered to Natrol correct and complete copies of all federal income
tax returns, examination reports, and statements of deficiencies assessed
against or agreed to by Prolab since December 31, 1994.
Prolab has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
Prolab has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662 of the Code. Prolab is not a party
to any Tax allocation or sharing agreement. Prolab (a) has not been a member of
an affiliated group filing a consolidated federal income tax return or (b) has
no liability for the Taxes of any Person under Treas. Reg. ss. 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
SECTION 3.14. CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Section 3.14 of the Disclosure
Schedule, Prolab is not a party to or is not otherwise bound by any (i)
employment contracts; (ii) stock redemption or purchase agreements; (iii)
agreements providing for the indemnification of others against any liabilities
(other than indemnification incidental to agreements entered into in the
ordinary course of business) or the sharing of the tax liability of others; (iv)
license agreements (as licensor or licensee); (v) distributor or sales
representative or similar agreements with any Person; (vi) agreements with
officers, directors, employees, or stockholders of Prolab or persons or
organizations related to or affiliated with any such persons; (vii) leases;
(viii) plans or contracts providing for bonuses, pensions, options, stock
purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union; (ix) agreements containing covenants limiting the freedom of Prolab to
compete in any line of business or territory or with any person or entity; (x)
indentures, mortgages, promissory notes, loan agreements, guaranties or other
agreements or commitments for the borrowing of money or any related security
agreements; (xi) any partnership, trust agreement, joint venture, or other
similar contract, arrangement or agreement; (xii) any registration rights
agreements, warrants, warrant agreements or other rights to subscribe for
securities, any voting agreements, voting trusts, shareholder agreements or
other similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements; or (xiii) any other agreement, contract,
commitment or similar arrangement which (A) based on the level of business over
the past 12 months has provided for or involved payments by or imposed any
liability or obligation of Prolab in excess of $25,000 per annum to any other
Person or (B) based on the level of business over the past 12 months has
provided for receipt by or created any right of Prolab to collect in excess of
$25,000, other than agreements, contracts or commitments incidental to plans or
products offered or sold by
15
Prolab which do not provide for annual receipts by Prolab or any of its
Subsidiaries in excess of $50,000 including, without limitation, any proposal or
commitment known to Prolab or the Stockholders with respect to any prospective
client or customer relationship which will involve such amounts.
(b) All contracts, agreements, leases and instruments to which
Prolab is a party or by which any of them is obligated are valid and are in full
force and effect and constitute legal, valid and binding obligations of such
company and, to the best knowledge of the Stockholders, enforceable in
accordance with their respective terms. There is no notice or threat of
termination or modification of any contracts, agreements or instruments listed
in Section 3.14 of the Disclosure Schedule, which termination or modification is
reasonably likely to have a Material Adverse Effect. Neither Prolab or any other
party to any of the contracts, agreements or instruments listed in Section 3.14
of the Disclosure Schedule is in default in complying with any provisions
thereof, and no condition or event or fact exists which, with notice, lapse of
time or both would constitute a default thereunder on the part of Prolab or any
other party thereto, except for any such default, condition, event or fact that,
individually or in the aggregate, would not have a Material Adverse Effect.
(c) Prolab (i) has no liability for renegotiation of
government contracts or subcontracts, (ii) has been suspended or debarred from
bidding on contracts or subcontracts with any federal, state or local agency or
governmental authority, (iii) has not been audited or investigated by any such
agency or authority with respect to contracts entered into or goods and services
provided by Prolab or (iv) has not had a contract terminated by any such agency
or authority for default or failure to perform in accordance with applicable
standards.
SECTION 3.15. INTELLECTUAL PROPERTY RIGHTS.
(a) Except as described in Section 3.15 of the Disclosure
Schedule, Prolab has exclusive ownership of, or exclusive license to use, all
patent, copyright, trade secret, trademark, or other proprietary rights
(collectively, "Intellectual Property") used or to be used in the business of
Prolab as presently conducted or contemplated. All of the rights of Prolab in
such Intellectual Property are freely transferable. There are no claims, demands
or liens or encumbrances of any other kind by any person pertaining to any of
such Intellectual Property and no proceedings have been instituted, or are
pending or threatened, which challenge the rights of Prolab in respect thereof.
Prolab has the right to use, free and clear of claims or rights of other
persons, all customer lists, designs, manufacturing or other processes, computer
software, systems, data compilations, research results and other information
required for or incidental to its products or its business as presently
conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to Prolab or used or to be used by Prolab in the Business as presently
conducted or contemplated, and all other items
16
of Intellectual Property which are material to the business or operations of
Prolab, are listed in Section 3.15 of the Disclosure Schedule. All of such
patents, patent applications, trademark registrations, trademark applications
and registered copyrights have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other jurisdictions as identified on
said Disclosure Schedule, and have been properly maintained and renewed in
accordance with all applicable provisions of law and administrative regulations
of the United States and each such jurisdiction.
(c) All licenses or other agreements, including all amendments
thereto, under which Prolab is granted rights in Intellectual Property are
listed in Section 3.15 of the Disclosure Schedule. All said licenses or other
agreements are in full force and effect, there is no material default by any
party thereto or notice of any claim of any failure of compliance in respect
thereto, and, except as set forth on Section 3.15 of the Disclosure Schedule,
all of the rights of Prolab thereunder are freely assignable. To the knowledge
of Company, the licensors under said licenses and other agreements have and had
all requisite power and authority to grant the rights purported to be conferred
thereby and Prolab has no knowledge that any licensor is insolvent, has
committed an act of bankruptcy or is bankrupt. True and complete copies of all
such licenses or other agreements have been provided to Buyers.
(d) All licenses or other agreements, including all amendments
thereto, under which Prolab has granted rights to others in Intellectual
Property owned or licensed by Prolab are listed in Section 3.15 of the
Disclosure Schedule. All of said licenses or other agreements are in full force
and effect, there is no material default by any party thereto, and, except as
set forth on Section 3.15 of the Disclosure Schedule, all of the rights of
Prolab thereunder are freely assignable by Prolab. True and complete copies of
all such licenses or other agreements have been provided to Buyers.
(e) Prolab has taken all steps required in accordance with
sound business practice to establish and preserve its ownership of all
Intellectual Property rights with respect to its products, services and
technology. Prolab has required all professional and technical employees and
other employees having access to valuable non-public information of Prolab, to
execute agreements under which such employees are required to convey to Prolab
ownership of all inventions and developments conceived or created by them in the
course of their employment and to maintain the confidentiality of all such
information of Prolab. Prolab has not made any such information available to any
person other than employees of Prolab except pursuant to written agreements
requiring the recipients to maintain the confidentiality of such information and
appropriately restricting the use thereof. Except as set forth in Section 3.15
of the Disclosure Schedule, Prolab has no knowledge of any infringement by
others of any Intellectual Property rights of Prolab.
17
(f) The present and contemplated business, activities and
products of Prolab do not infringe any Intellectual Property of any other
person. No proceeding charging Prolab with infringement of any adversely held
Intellectual Property has been filed or is threatened to be filed. There exists
no unexpired patent or patent application which includes claims that would be
infringed by or otherwise adversely affect the products, activities or business
of Prolab. Prolab is not making unauthorized use of any confidential information
or trade secrets of any person, including without limitation, any former
employer of any past or present employee of Prolab. Except as set forth in
Section 3.15 of the Disclosure Schedule, neither Prolab nor, to the knowledge of
Prolab and the Stockholders, any of their employees have any agreements or
arrangements with any persons other than Prolab related to confidential
information or trade secrets of such persons or restricting any such employee's
ability to engage in business activities of any nature. The activities of their
employees on behalf of Prolab do not violate any such agreements or arrangements
known to Prolab.
(g) Prolab has reviewed the areas within its businesses and
operations which could be adversely affected by, and has developed a program to
address on a timely basis, the "Year 2000 Problem" (i.e., the risk that
applications used by Prolab or its suppliers and/or providers may be unable to
recognize and properly perform date-sensitive functions involving certain dates
prior to and any date after December 31, 1999). Prolab and the Stockholders
reasonably believe that the "Year 2000 Problem" will not have any material
adverse effect on the business or operations of Prolab.
SECTION 3.16. LITIGATION; PRODUCT WARRANTY CLAIMS. Except as set forth
on Section 3.16 of the Disclosure Schedule, there is no litigation or
governmental or administrative proceeding or investigation pending or, to the
best knowledge of the Stockholders, threatened against Prolab or affecting any
of its properties or assets, or against any officer, director or stockholder or
key employee of Prolab which, if adversely determined, may have a Material
Adverse Effect, or which may call into question the validity or hinder the
enforceability or performance of this Agreement or the agreements and
transactions contemplated hereby; nor has there occurred any event nor does
there exist any condition on the basis of which any such claim is reasonably
likely to be asserted. There are no existing or threatened product liability,
warranty or other similar claims, or any facts upon which a material claim of
such nature could be based, against the Prolab for products or services which
are defective or fail to meet any product or service warranties except as
disclosed in Section 3.15 of the Disclosure Schedule. No claim has been asserted
against Prolab for renegotiation or price redetermination of any business
transaction, and there are no facts upon which any such claim could be based. No
product distributed by Prolab is adulterated or misbranded within the meaning of
the Federal Food, Drug and Cosmetic Act, or is an article which may not under
the provisions of Section 505 of such Act be introduced into interstate
commerce.
SECTION 3.17. PERMITS; COMPLIANCE WITH LAWS. Except as set forth in
Section 3.17 of the Disclosure Schedule, Prolab has all necessary franchises,
authorizations, approvals, orders,
18
consents, licenses, certificates, permits, registrations, qualifications or
other rights and privileges (collectively "Permits") necessary to permit it to
own its properties and to conduct its businesses as the same are presently
conducted or proposed to be conducted and all such Permits are valid and in full
force and effect except for Permits the absence of which would have a Material
Adverse Effect. No Permit is subject to termination as a result of the execution
of the Agreement or consummation of the transactions contemplated hereby. Prolab
is now and has heretofore been in compliance with, and has not received any
notice of any failure to comply with, all applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority which apply to the conduct of its Business,
including, but not limited to the Federal Food, Drug and Cosmetic Act, Federal
Trade Commission Act, Fair Packaging and labeling Act, Consumer Product Safety
Act, Toxic Substances Control Act, Emergency Planning and Community Right-To-
Know Act as well as regulations promulgated thereunder. Prolab has never entered
into or been subject to any judgment, consent decree, compliance order or
administrative order with respect to any federal, state or municipal law or
received any request for information, notice, demand letter, administrative
inquiry or formal or informal investigation, complaint or claim with respect to
any matter or the enforcement of any such law. Prolab has provided Natrol with
copies of all documents, including correspondence, received from or sent to any
federal, state or local agency or authority relating to Prolab or its products
and all documents discussing or relating to complaints from Prolab's competitors
regarding claims relating to products distributed by Prolab inquiries by the
National Advertising Division of the Better Business Bureau.
SECTION 3.18. INVENTORIES. Prolab's inventory items are of a quality
and quantity salable in the ordinary course of its business and Prolab maintains
adequate inventory reserves. The inventories stated in the Base Balance Sheet
reflect the normal inventory valuation policies of Prolab and are based on and
consistent with Prolab's inventory records, and in the reasonable judgment of
Seller are properly valued. Since the date of the Base Balance Sheet, no
inventory items have been sold or disposed of except through sales in the
ordinary course of business, on the whole, at profit margins consistent with
Prolab's experience in prior years.
SECTION 3.19. LABOR LAWS. As of the date hereof, Prolab employs 37
full-time and one part-time employees and except as set forth in Section 3.19 of
the Disclosure Schedule generally enjoy a good employer-employee relationship.
Prolab is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it to the date hereof or amounts required to be reimbursed to such
employees. Except as set forth in Section 3.19 of the Disclosure Schedule there
are no charges of employment discrimination or unfair labor practices or
strikes, slowdowns, stoppages of work, or any other concerted interference with
normal operations existing, pending or threatened against or involving any of
Prolab or any of their respective Subsidiaries. No question concerning
representation exists respecting any group of employees of Prolab or its
Subsidiaries. Except as set forth in Section 3.19 of the Disclosure Schedule
19
there are no claims or charges relating to or alleging sexual harassment or
discrimination existing, pending or threatened against Prolab or has there
occurred any event or does there exist any condition on the basis of which any
such claim is reasonably likely to be asserted. Prolab and its Subsidiaries are,
and at all times since November 6, 1986 have been, in compliance in all material
respects with the requirements of the Immigration Reform Control Act of 1986.
SECTION 3.20. INFORMATION SUPPLIED TO NATROL. Neither this Agreement
(including the Disclosure Schedule) nor any document referenced herein, nor any
certificate or statement furnished pursuant to or in connection with this
Agreement by or on behalf of Prolab, when taken together contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading. There is no
material fact directly relating to the business, operations or condition of
Prolab (other than facts which relate to general economic or nationwide industry
trends or conditions) that has a Material Adverse Effect or, to the best
knowledge of Prolab and the Stockholders, in the future is reasonably likely to
(so far as may now be reasonably foreseen based upon material facts of which
Prolab or any of the Stockholders are now aware) have a Material Adverse Effect
that has not been set forth in this Agreement or in the Disclosure Schedule.
Except as disclosed in Section 3.20 of the Disclosure Schedule, none of the
Stockholders or any of the officers or directors of Prolab has been (a) subject
to voluntary or involuntary petition under the federal bankruptcy laws or any
state insolvency law or the appointment of a receiver, fiscal agent or similar
officer by a court for his business or property; (b) convicted in a criminal
proceeding or named as a subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses) or been otherwise accused of any
act of moral turpitude; (c) subject to any order, judgment, or decree (not
subsequently reversed, suspended or vacated) of any court of competent
jurisdiction permanently or temporarily enjoining him from, or otherwise
imposing limits or conditions on his, engaging in any securities, investment
advisory, banking, insurance or other type of business or acting as an officer
or director of a public company; or (d) found by a court of competent
jurisdiction in a civil action or by the Securities and Exchange Commission or
the Commodity Futures Trading Commission to have violated any federal or state
commodities, securities or unfair trade practices law, which such judgment or
finding has not been subsequently reversed, suspended, or vacated. None of
Prolab or any Stockholder has ever made any illegal payment or contribution of
any kind, directly or indirectly, including, without limitation, payments, gifts
or gratuities, to United States or foreign national, state or local government
officials, employees or agents or candidates therefor.
SECTION 3.21. INVESTMENT BANKING; BROKERAGE. There are no claims for
investment banking fees, brokerage commissions, finder's fees or similar
compensation (exclusive of professional fees of lawyers and accountants) in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of Prolab or any Stockholder.
20
SECTION 3.22. EMPLOYEE BENEFIT PROGRAMS.
(a) Section 3.22 of the Disclosure Schedule sets forth a list
of every Employee Program (as defined below) that has been maintained (as such
term is further defined below) by Prolab at any time prior to the Closing Date.
(b) Except as set forth in Section 3.22 of the Disclosure
Schedule, each Employee Program which has at any time been intended to qualify
under Section 401(a) or 501(c)(9) of the Internal Revenue Code of 1986, as
amended (the "Code"), has received a favorable determination or approval letter
from the Internal Revenue Service ("IRS") regarding its qualification under such
section and has, in fact, been qualified under the applicable section of the
Code from the effective date of such Employee Program through and including the
Closing (or, if earlier, the date that all of such Employee Program's assets
were distributed). No event or omission has occurred which would cause any such
Employee Program to lose its Qualification under the applicable Code section.
(c) Except as set forth in Section 3.22 of the Disclosure
Schedule, there has not been any failure of any party to comply with any laws
applicable with respect to the Employee Programs. With respect to any Employee
Program, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, or breach of any duty under ERISA or
other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which could result, directly
or indirectly (including without limitation through any obligation of
indemnification or contribution), in any taxes, penalties or other liability to
Prolab or any Affiliate (as defined below). No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or, to the
best knowledge of the Stockholders, threatened with respect to any such Employee
Program.
(d) With respect to each Employee Program within the three
years preceding the date hereof, complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered to Natrol: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended through the date
hereof; (ii) the most recent IRS determination or approval letter with respect
to such Employee Program under Code Section 401 or 501(c)(9), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; (v) any insurance
policy (including any fiduciary liability insurance policy) related to such
Employee Program;
21
(vi) any documents evidencing any loan to an Employee Program that is a
leveraged employee stock ownership plan.
(e) Except as set forth in Section 3.22 of the Disclosure Schedule,
each Employee Program maintained as of the date hereof is subject to termination
by the Board of Directors of Prolab without any further liability or obligation
on the part of such Company or such Subsidiary to make further contributions to
any trust maintained under any such Employee Program following such termination.
(g) For purposes of this Section 3.22:
(i) "Employee Program" means (A) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer welfare arrangements (within the
meaning of ERISA Section 3(40)), plans to which more than one
unaffiliated employer contributes and employee benefit plans (such
as foreign or excess benefit plans) which are not subject to ERISA;
and (B) all stock option plans, bonus or incentive award plans,
severance pay policies or agreements, deferred compensation
agreements, supplemental income arrangements, vacation plans, and
all other employee benefit plans, agreements, and arrangements not
described in (A) above. In the case of an Employee Program funded
through an organization described in Code Section 501(c)(9), each
reference to such Employee Program shall include a reference to such
organization;
(ii) an entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity
(or their spouses, dependents, or beneficiaries);
(iii) An entity is an "Affiliate" of any of Prolab or
any of their respective Subsidiaries for purposes of this Section
3.22 if it would have ever been considered a single employer with
such Company or such Subsidiary under ERISA Section 4001(b) or part
of the same "controlled group" as Prolab for purposes of ERISA
Section 302(d)(8)(C), and in any case includes each Subsidiary; and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more
collective bargaining agreements.
22
SECTION 3.23. ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 3.23 of the Disclosure Schedule,
(i) Prolab has not generated, transported, used, stored, treated, disposed of,
or managed any Hazardous Waste (as defined below); (ii) no Hazardous Material
(as defined below) has ever been or is threatened to be spilled, released, or
disposed of at any site presently or formerly owned, operated, leased, or used
by Prolab, or has ever come to be located in the soil or groundwater at any such
site; (iii) no Hazardous Material has ever been transported from any site
presently or formerly owned, operated, leased, or used by Prolab for treatment,
storage, or disposal at any other place; (iv) Prolab does not presently own,
operate, lease, or use, and has not previously owned, operated, leased, or used
any site on which underground storage tanks are or were located; and (v) no lien
has ever been imposed by any governmental agency on any property, facility,
machinery, or equipment owned, operated, leased, or used by Prolab in connection
with the presence of any Hazardous Material.
(b) Except as set forth in Section 3.23 of the Disclosure Schedule,
to the Best knowledge of the Stockholders, (i) Prolab has no liability under,
and has not violated in any material respect, any Environmental Law (as defined
below); (ii) Prolab, any property owned, operated, leased, or used by it, and
any facilities and operations thereon are presently in compliance in all
material respects with all applicable Environmental Laws; (iii) Prolab has not
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) none of the Stockholders has any reason to believe
that any of the items enumerated in clause (iii) of this paragraph will be
forthcoming.
(c) Except as set forth in Section 3.23 of the Disclosure Schedule,
to the best knowledge of the Stockholders, no site owned, operated, leased, or
used by Prolab or its Subsidiaries contains any asbestos or asbestos-containing
material, any polychlorinated biphenyls ("PCBs") or equipment containing PCBs,
or any urea formaldehyde foam insulation.
(d) Prolab has provided to Natrol copies of all documents, records,
and information available to them concerning any environmental or health and
safety matter relevant to any them, whether generated by them or others,
including, without limitation, environmental audits, environmental risk
assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents, and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
23
(e) For purposes of this Section 3.23, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, or contaminant,
as defined or regulated under any Environmental Law; (ii) "Hazardous Waste"
shall mean and include any hazardous waste as defined or regulated under any
Environmental Law; (iii) "Environmental Law" shall mean any applicable
environmental or health and safety-related law, regulation, rule, ordinance, or
by-law at the federal, state, or local level, existing as of the date hereof or
previously enforced; and (iv) the "Companies" shall mean and include each of
Prolab, their respective Subsidiaries, their respective predecessors and all
other entities for whose conduct such Company or any such Subsidiary is or may
be held responsible under any Environmental Law.
SECTION 3.24. INSURANCE. The physical properties, assets, business,
operations, employees, officers and directors of Prolab are insured to the
extent disclosed in Section 3.24 of the Disclosure Schedule. There is no claim
by Prolab pending under any such policies as to which coverage has been
questioned, denied or disputed by the insurer. Said insurance policies and
arrangements are in full force and effect, all premiums with respect thereto are
currently paid, and Prolab is in compliance in all material respects with the
terms thereof. Such insurance is sufficient for compliance by Prolab with all
requirements of applicable law and all agreements and leases to which it is a
party. Except as set forth in Section 3.24 of the Disclosure Schedule, the
execution of this Agreement and consummation of the transactions contemplated
hereby shall not result in the termination of any such insurance policy or in
coverage of possible losses and liabilities covered thereby otherwise available
thereunder becoming unavailable.
SECTION 3.25. RELATIONSHIP WITH CUSTOMERS AND SUPPLIERS. The
relationships of Prolab with its customers and suppliers are good commercial
working relationships. Set forth in Section 3.25 of the Disclosure Schedule is a
list of the top 50 customers of Prolab by sales for the year ended December 31,
1998 and for the eight month period ended August 31, 1999. Except as set forth
in Section 3.25 of the Disclosure Schedule, no Material Customer has canceled or
otherwise terminated its relationship with Prolab or, has during said period
decreased materially its usage, purchase, or provision, as the case may be, of
the services or products of Prolab. Except as set forth in Section 3.25 of the
Disclosure Schedule no such Material Customer has, to the best knowledge of the
Stockholders, any plan or intention to terminate, to cancel or otherwise
materially and adversely modify its relationship with Prolab or to decrease
materially or limit its usage, purchase, or provision, as the case may be, of
the services or products of such company. Section 3.25 of the Disclosure
Schedule sets forth a list of all suppliers and vendors of Prolab to whom during
the fiscal year ended December 31, 1998 Prolab made payments aggregating
$100,000 or more, showing, with respect to each, the name, address and dollar
volume involved. No such supplier or vendor has prematurely terminated or
reduced its business with Prolab or materially and adversely modified its
relationship with Prolab nor has Prolab or any Stockholder received written
notice that any such supplier or vendor have any plan or intention to do so.
24
SECTION 3.26. INVESTMENT REPRESENTATIONS.
(a) Each Stockholder represents that such Stockholder has had an
opportunity to ask questions of the principal officers and representatives of
Natrol and to obtain any additional information necessary to permit an
evaluation of the benefits and risks associated with the investment made hereby.
Each Stockholder confirms that such Stockholder has received and read the
information provided by the Company which includes (i) Natrol's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, (ii) Natrol's Proxy
Statement dated May 11, 1999 and (iii) Natrol's Annual Report to Shareholders
for the fiscal year ended December 31, 1998 (iv) Natrol's Quarterly Reports on
Form 10-Q, for each of the three-month periods ended March 31, 1999, and June
30, 1999. (the "Informational Materials") and specifically confirms that such
Stockholder fully understands information contained in the Informational
Materials.
(b) Each Stockholder represents that such Stockholder is an
"accredited investor" within the meaning of Rule 501 under the Securities Act of
1933, and has such knowledge and experience in business, financial and
investment matters that such Stockholder is capable of evaluating the merits and
risks involved in the investment made hereby and further represents that such
Stockholder is able to bear the economic risk of such investment for an
indefinite period of time or to lose the entire investment made hereby.
(c) Each Stockholder hereby represents that such Stockholder is
acquiring the Natrol Common Stock for his own account and not with a view to any
sale or distribution thereof within the meaning of the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations of the Securities and
Exchange Commission thereunder as amended from time to time (the "Regulations"),
except to the extent permitted by the Act and the Regulations. Each Stockholder
agrees that such Stockholder will make no sale, offer to sell or transfer of any
Natrol Common Stock in violation of the Act, the Regulations or any other
federal or state securities law, or in violation of the terms of this Agreement.
(d) Each Stockholder understands that neither the Natrol Common
Stock nor the offer and sale thereof has been or will be registered under the
Act or the securities laws of any state and that such Natrol Common Stock may
not be sold, offered for sale or transferred for an indefinite period of time
unless and until (i) a registration statement with respect thereto is in effect
under the Act and applicable state laws or (ii) the Stockholder shall establish
to the satisfaction of the Natrol and its counsel that the proposed transaction
is exempt from registration under the Act and applicable state laws or that
registration under the Act and applicable state laws is not required. The
foregoing restrictions and provisions shall apply to any subsequent holder or
transferee of any Natrol Common Stock. Each Stockholder acknowledges that and
agrees that the certificate(s) representing the shares of Natrol Common Stock to
be issued to the Stockholders hereunder shall bear a legend substantially in the
following form:
25
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT PURSUANT TO (1) A REGISTRATION STATEMENT
WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT OR (2) AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SUCH
SECURITIES."
Natrol agrees that it will cause its transfer agent to remove such
legend upon receipt of an opinion of counsel satisfactory to such transfer agent
to the effect that such shares may be transferred free of restrictions and
certificates therefor may be issued free of any restrictive legend.
(e) Each Stockholder represents that such Stockholder is an
individual residing in the state listed on Schedule 1.02 hereof and that all
negotiations concerning the investment made hereby have taken place in such
state.
(f) Each Stockholder acknowledges that pursuant to Rule 144 of the
Securities and Exchange Commission, they may not sell or otherwise dispose of
the Natrol Common Stock acquired pursuant hereto for a period of one (1) year
from the date hereof.
SECTION 3.27. CORPORATE RECORDS; COPIES OF DOCUMENTS. The corporate
record books of Prolab accurately record all material corporate action taken by
their respective stockholders and board of directors and committees. The copies
of such corporate records, as made available to Natrol for review, are true and
complete copies of the originals of such documents.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF NATROL.
SECTION 4.01. MAKING OF REPRESENTATIONS AND WARRANTIES. As a material
inducement to the Stockholders to enter into this Agreement and consummate the
transactions contemplated hereby, Natrol hereby makes to them the
representations and warranties contained in this Article IV.
SECTION 4.02. ORGANIZATION AND CORPORATE POWER. Natrol is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is conducted and to enter
into this Agreement and each agreement, document and instrument to
26
be executed and delivered by it pursuant to or as contemplated by this Agreement
and to carry out the transactions contemplated hereby and thereby.
SECTION 4.03. AUTHORITY. The execution, delivery and performance of
this Agreement and each agreement, document and instrument to be executed and
delivered by Natrol pursuant to this Agreement have been duly authorized by all
necessary corporate action of Natrol, and no other corporate action on the part
of Natrol or its stockholders is required in connection therewith. This
Agreement and each such agreement, document and instrument constitutes, or when
executed and delivered by Natrol will constitute, valid and binding obligations
of Natrol enforceable in accordance with their respective terms. The execution,
delivery and performance by Natrol of this Agreement and each such agreement,
document and instrument:
(a) do not and will not violate any provisions of the Certificate of
Incorporation or by-laws of Natrol;
(b) do not and will not result in any violation by Natrol of any
laws, rules or regulations of the United States or any state or other
jurisdiction applicable to Natrol, or require Natrol to obtain any approval,
consent or waiver of, or to make any filing with, any Person (governmental or
otherwise) that has not been obtained or made; and
(c) do not and will not result in a breach of, constitute a default
under, accelerate any obligation under or give rise to a right of termination of
any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, order, writ, judgment, injunction, decree,
determination or arbitration award to which Natrol is a party or by which the
property of Natrol is bound or affected, or result in the creation or imposition
of any mortgage, pledge, lien, security interest or other charge or encumbrance
on any property or asset owned by Natrol.
SECTION 4.04. INVESTMENT BANKING; BROKERAGE. Except for a payment to
Xxxxxxxx & Rouen, of San Marino, CA. There are no claims for investment banking
fees, brokerage commissions, finder's fees or similar compensation (exclusive of
professional fees of lawyers and accountants) in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Natrol.
ARTICLE V. SURVIVAL; INDEMNIFICATION.
SECTION 5.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. All
representations, warranties, agreements, covenants and obligations herein or in
any schedule or certificate delivered by any party incident to the transactions
contemplated hereby are material and may be relied upon by the party receiving
the same and shall survive the Closing regardless of any
27
investigation by or knowledge of such party and shall not merge into the
performance of any obligation by any party hereto, subject to the provisions of
this Article V.
SECTION 5.02. INDEMNIFICATION BY THE STOCKHOLDERS. Each of the
Stockholders, on behalf of themselves and their respective successors,
executors, administrators, estates, heirs and permitted assigns as contemplated
by Section 6.04, jointly and severally, subject to Section 5.02(b), agree
subsequent to the Closing Date to indemnify and hold harmless Natrol, its
affiliates and their respective shareholders, officers, directors, employees and
agents (individually, a "Buyer Indemnified Party" and collectively, the "Buyer
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing and including any loss of
Tax benefit or increase in Taxes payable for future periods) sustained, suffered
or incurred by or made against any Buyer Indemnified Party (a "Loss" or
"Losses") arising out of, based upon or in connection with:
(a) any inaccuracy or breach of any representation or warranty made
by Prolab or the Stockholders, in this Agreement or in any schedule, exhibit,
certificate, financial statement, agreement or other instrument delivered under
or in connection with this Agreement;
(b) material undisclosed liabilities known to any of the
Stockholders relating to the activities or conduct of the business of Prolab on
or prior to the Closing Date, including without limitation (i) any and all
claims for or resulting from or connected with products sold or services
provided by Prolab prior to the Closing Date or otherwise relating to events
occurring on or prior to the Closing Date, (ii) amounts due in connection with
any Employee Program (as defined in Section 3.22), (iii) Losses relating to the
failure of Prolab to comply with applicable laws or regulations, and (iv) Losses
with respect to Taxes for periods on or prior to the Closing Date;
(c) the Basic Litigation (as defined in Section 1.02(b) above);
(d) challenges, claims, proceedings or filings made by, with or on
behalf of, the Federal Trade Commission or the Federal Drug Administration or
any comparable state agency (an "Agency") relating to any advertising or
promotional materials of Prolab existing on or before the Closing Date and any
product labels of Prolab existing on or before the Closing Date regardless of
whether such advertising or promotional materials were distributed or such
products were sold before or after the Closing Date; and
28
(e) any fees and expenses (including without limitation legal fees
and accounting fees) relating to this Agreement or any transactions contemplated
hereby paid, assumed or otherwise borne by Prolab except (i) to the extent such
fees and expenses have been reflected in the calculation of the Adjustment
Amount pursuant to Section 1.03(a) hereof and (ii) the costs and expenses
incurred by Prolab in connection with the Audit.
Claims under clauses (a) through (e) of this Section 5.02 hereinafter
collectively referred to as "Buyer Indemnifiable Claims".
The rights of Buyer Indemnified Parties to recover indemnification in
respect of any occurrence referred to in clauses (b) through (e) of this Section
5.02 shall not be limited by the fact that such occurrence may not constitute an
inaccuracy in or breach of any representation or warranty referred to in clause
(a) of this Section 5.02.
SECTION 5.03. LIMITATIONS ON INDEMNIFICATION BY STOCKHOLDERS.
(a) GENERAL THRESHOLD. Subject to the exceptions set forth in
Sections 5.03(d) and (e), the Stockholders and shall not be obligated to
indemnify Company Indemnified Parties in respect of Buyer Indemnifiable Claims
except to the extent the cumulative amount of all Buyer Indemnifiable Claims
exceeds Fifty Thousand Dollars ($50,000) (the "Buyer Threshold"), which excess
cumulative amount shall be recoverable in accordance with the terms hereof;
PROVIDED, HOWEVER, that the Buyer Indemnified Parties shall be entitled to
dollar-for-dollar recovery with respect to Losses involving a breach of the
representations and warranties contained in Sections 3.02, 3.03, 3.05,
3.09(iii), 3.11, 3.13 or 3.21.
(b) GENERAL MAXIMUM INDEMNIFICATION. Subject to the exceptions set
forth in Sections 5.03(d) and (e), the Stockholders shall not be obligated to
indemnify Buyer Indemnified Parties in respect of Buyer Indemnifiable Claims
after the cumulative amount of all Buyer Indemnifiable Claims exceeds forty
percent (40%) of the Total Purchase Price.
(c) TIME LIMITS FOR CLAIMS. Subject to the exceptions set forth in
Sections 5.03(d) and (e), no claim for indemnification may be made by any Buyer
Indemnified Party in respect of Buyer Indemnifiable Claims unless the written
notice required by Section 5.06 with respect to such Losses shall have been
received by the Representative a date prior to the second anniversary of the
Closing Date; PROVIDED, HOWEVER, that the limitation of this clause (c) shall
not apply to (A) Buyer Indemnifiable Losses described in Section 5.02(c), (B)
Buyer Indemnifiable Losses involving a breach of the representations and
warranties contained in Sections 3.02, 3.03, 3.05, 3.09(iii), 3.11, 3.13 or 3.21
and (C) Buyer Indemnifiable Losses with respect to Taxes of Prolab,
indemnification with respect to which shall expire six (6) months after the
termination of the applicable statute of limitations relating to the subject
matter covered by such Section; and PROVIDED FURTHER, that in each case if prior
29
to the applicable date of expiration a specific state of facts shall have become
known which may constitute or give rise to any Buyer Indemnifiable Loss as to
which indemnity may be payable and a Buyer Indemnified Party shall have given
notice of such facts to the Stockholders and made a claim for indemnification
within six months thereafter, then the right to indemnification with respect
thereto shall remain in effect until such matter shall have been finally
determined and disposed of, and any indemnification due in respect thereof shall
have been paid, according to the date on which notice of the applicable claim is
given.
(d) DOLLAR-FOR-DOLLAR CLAIMS. Notwithstanding anything herein to the
contrary, Buyer Indemnified Parties shall not be subject to any limitation,
whether pursuant to this Section 5.03 or otherwise, and shall be entitled to
dollar-for-dollar recovery, in seeking indemnification from any Stockholder with
respect to the following:
(i) Losses arising from fraud or an intentional
misrepresentation on the part of or any Stockholder;
(ii) Losses arising from breach of the representations and
warranties contained in Sections 3.02, 3.03, 3.05, 3.09(iii), 3.11,
3.13 or 3.21 or a covenant by any Stockholder; or any
(iii) Losses described in Section 5.02(b), 5.02(c) or 5.02(e).
(e) AGENCY CLAIMS. Notwithstanding anything herein to the contrary,
with respect to Losses described in Section 5.02(d), Buyer Indemnified Parties
shall not be subject to the limitations set forth in Sections 5.03(a) through
(d) above, but shall be entitled to recover from the Stockholders fifty percent
(50%) of all Losses described in Section 5.02(d) which arise prior to the first
anniversary of the Closing Date.
SECTION 5.04. INDEMNIFICATION BY NATROL. Natrol agrees subsequent to the
Closing Date to indemnify and hold harmless the Stockholders from and against
and in respect of all Losses sustained, suffered or incurred by or made against
any of them arising out of, based upon or in connection with (a) any inaccuracy
or breach of any representation or warranty made by Natrol in this Agreement or
in any schedule, exhibit, certificate, financial statement, agreement or other
instrument delivered under or in connection with this Agreement; and (b) any
breach of any covenant or agreement made by Natrol in this Agreement or in any
schedule, exhibit, certificate, financial statement, agreement or other
instrument delivered under or in connection with this Agreement (such claims
under clauses (a) and (b) being hereinafter collectively referred to as "Seller
Indemnifiable Claims").
30
SECTION 5.05. LIMITATIONS ON INDEMNIFICATION BY NATROL.
(a) TIME LIMIT FOR CLAIMS; GENERAL THRESHOLD. The right of any
Stockholder to indemnification under Section 5.04 shall be subject to the
following provisions:
(i) Indemnification with respect to Seller Indemnifiable Claims shall
expire on the third anniversary of the Closing Date.
(ii) No indemnification shall be payable with respect to Seller
Indemnifiable Claims except to the extent that the cumulative amount of all
Seller Indemnifiable Claims shall exceed $50,000, which excess cumulative
amount shall be recoverable in accordance with the terms hereof.
(b) CERTAIN MATTERS. Notwithstanding anything herein to the
contrary, the Stockholders shall not be subject to limitation, whether pursuant
to Section 5.05(a) hereof or otherwise, in seeking indemnification with respect
to any Seller Indemnifiable Claim (i) involving fraud or an intentional
misrepresentation by Natrol, (ii) arising from breach of a covenant by Natrol or
(iii) involving a breach by Natrol of the representations and warranties
contained in Sections 4.03 and 4.04 hereof.
SECTION 5.06. NOTICE; DEFENSE OF CLAIMS.
(a) Promptly after receipt by an indemnified party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the indemnified party shall give notice thereof in writing to the
indemnifying party (Natrol with respect to claims by any Stockholder and the
Representative, with respect to claims by Buyer Indemnified Parties), but the
omission to so notify the indemnifying party promptly will not relieve the
indemnifying party from any liability except to the extent that the indemnifying
party shall have been prejudiced as a result of the failure or delay in giving
such notice. Such notice shall state the information then available regarding
the amount and nature of such claim, liability or expense and shall specify the
provision or provisions of this Agreement under which the liability or
obligation is asserted. Other than with respect to the Basic Litigation and
proceedings referred to in Section 5.02(d) ("Agency Proceedings"), if within 20
business days after receiving such notice the indemnifying party gives written
notice to the indemnified party stating that (i) it would be liable under the
provisions hereof for indemnity in the amount of such claim if such claim were
successful (ii) that it shall be fully responsible (with no reservation of any
rights) for all liabilities relating to such claim, liability or expense and
that it will provide full indemnification (whether or not otherwise required
hereunder) to the indemnified party with respect to such claim, liability or
expense and (iii) that it disputes and intends to defend against such claim,
liability or expense at its own cost and expense, then counsel for the defense
shall be selected by the indemnifying party (subject to the consent of the
indemnified party which consent shall not be unreasonably withheld) and the
indemnified
31
party shall not be required to make any payment with respect to such claim,
liability or expense as long as the indemnifying party is conducting a good
faith and diligent defense at its own expense; PROVIDED, HOWEVER, that the
assumption of defense of any such matters by the indemnifying party shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification, and PROVIDED FURTHER that prior to such assumption of
defense the indemnifying party shall enter into an agreement with the
indemnified party in form and substance satisfactory to the indemnified party
pursuant to which the indemnifying party (i) unconditionally guarantees the
payment and performance of any liability or obligation which may arise out of or
in any way relating to such claim, liability or expense or the facts giving rise
thereto and (ii) provides the indemnified party with evidence reasonably
acceptable to the indemnified party that the indemnifying party will have the
financial resources to defend the claim, liability or expense and to pay and
perform any liability or obligation which may arise out of or in any way
relating to such claim, liability or expense or the facts giving rise thereto.
The indemnifying party shall have the right, with the consent of the indemnified
party, which consent shall not be unreasonably withheld, to settle all
indemnifiable matters related to claims by third parties which are susceptible
to being settled provided its obligation to indemnify the indemnifying party
therefor will be fully satisfied. The indemnifying party shall keep the
indemnified party apprised of the status of the claim, liability or expense and
any resulting suit, proceeding or enforcement action, shall furnish the
indemnified party with all documents and information that the indemnified party
shall reasonably request and shall consult with the indemnified party prior to
acting on major matters, including settlement discussions. Notwithstanding
anything herein stated to the contrary, the indemnified party shall at all times
have the right to fully participate in such defense at its own expense directly
or through counsel; PROVIDED, HOWEVER, if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would, in the reasonable
judgment of the indemnified party and its counsel, be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for the indemnified party shall be paid by the indemnifying party. If no such
notice of intent to dispute and defend is given by the indemnifying party, or if
such diligent good faith defense is not being or ceases to be conducted, the
indemnified party shall, at the expense of the indemnifying party, undertake the
defense of (with counsel selected by the indemnified party), and shall have the
right to compromise or settle (exercising reasonable business judgment), such
claim, liability or expense. If such claim, liability or expense is one that by
its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense.
(b) Notwithstanding the provisions of Section 5.06(a), the
Stockholders shall not be entitled to assume the defense of the Basic Litigation
or any Agency Proceeding in accordance with Section 5.06(a). The defense of the
Basic Litigation or any Agency Proceeding shall be conducted by or at the
direction of Natrol. The Representative shall be entitled to receive any and all
information reasonably requested by him with respect to the
32
Basic Litigation or any Agency Proceeding and shall be entitled to participate
with representatives of Natrol in the defense of the Basic Litigation or any
Agency Proceeding. Each of the Stockholders agrees to cooperate with the defense
of the Basic Litigation or any Agency Proceeding by Natrol and shall take all
actions reasonably requested by Natrol in connection therewith. Notwithstanding
the foregoing, Natrol shall not have the right to settle the Basic Litigation or
any Agency Proceeding without the consent of the Representative, which consent
shall not be unreasonably withheld.
SECTION 5.07. RECOVERIES. The amount of any Losses suffered, sustained,
incurred or required to be paid by an indemnifying party shall be reduced by the
amount of any insurance proceeds or other amounts relating to such Losses paid
to the indemnified party by any Person not a party to this Agreement.
SECTION 5.08. SATISFACTION OF STOCKHOLDER INDEMNIFICATION OBLIGATIONS. In
order to satisfy the indemnification obligations of the Stockholders pursuant to
Sections 5.02 and 5.03 above, a Buyer Indemnified Party shall have the right (in
addition to collecting directly from the Stockholders) to set off its
indemnification claims against any and all amounts payable by Natrol to any
Stockholder under this Agreement or otherwise. In addition to all other remedies
available to Buyer Indemnified Party, in order to satisfy the indemnification
obligations of the Stockholders pursuant to Section 5.02(c), Natrol, on behalf
of any Buyer Indemnified Party, shall have the right to reduce the Stock Payment
as further set forth in Section 1.02(b).
ARTICLE VI. MISCELLANEOUS.
SECTION 6.01. LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws, and not the law of conflicts, of the State of
Delaware.
SECTION 6.02. NOTICES. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail upon the sooner of the expiration of three
days after deposit in United States post office facilities properly addressed
with postage prepaid or acknowledgment of receipt, as follows:
TO NATROL: Natrol Professional Services, Inc.
00000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxx, Senior Vice President
33
with a copy to: Xxxxxxx, Procter & Xxxx LLP
Exchange Place
Boston, MA 02109-2881
Attn: Xxxx X. XxXxxxxx, P.C.
TO THE REPRESENTATIVE: Xxxxxx X. Xxxxx
00 Xxx Xxxxx
Xxxx, XX 00000
with a copy to: Law Offices of Xxxx X. Silver
Bushnell Tower
Xxx Xxxx Xxxxxx, Xxxxx X
Xxxxxxxx, XX 00000-0000
Attn: Xxxx X. Silver
or to such other address of which any party may notify the other parties as
provided above.
SECTION 6.03. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes all
prior understandings and agreements among the parties relating to the subject
matter hereof, including without limitation the letter agreement dated August
10, 1999.
SECTION 6.04. ASSIGNABILITY. This Agreement shall be assignable by Natrol
after payment of any amounts owing to the Stockholders under Section 1.02,
although no such assignment shall relieve Natrol of any of its liabilities or
obligations under this Agreement. This Agreement shall not otherwise be
assignable by Natrol without the prior written consent of the Representative, or
by any of the Stockholders without the prior written consent of Natrol. This
Agreement (including without limitation the provisions of Article V) shall be
binding upon and enforceable by, and shall inure to the benefit of, the parties
hereto and their respective successors, heirs, executors, administrators and
permitted assigns, and no others. Notwithstanding the foregoing, nothing in this
Agreement is intended to give any Person not named herein the benefit of any
legal or equitable right, remedy or claim under this Agreement, except as
expressly provided herein.
SECTION 6.05. FEES AND EXPENSES. Each of Natrol and each of the
Stockholders shall pay its or his own expenses and costs associated with the
preparation of this Agreement and the consummation of the transactions
contemplated hereby; PROVIDED, HOWEVER, that the Stockholders may cause Prolab
to pay the expenses of the Stockholders and such payment shall be considered in
the preparation of and fully accounted for on the Estimated Closing Balance
Sheet and the effect thereof shall be fully reflected in adjustments to the
Total Purchase Price pursuant to Section 1.03 hereof.
34
SECTION 6.06. PUBLICITY AND DISCLOSURES. A joint initial press release
shall be made at the time of execution of this Agreement announcing that this
Agreement has been signed. Such press release shall be in form and substance
reasonably acceptable to the parties hereto.
SECTION 6.07. CAPTIONS AND GENDER. The Captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
SECTION 6.08. EXECUTION IN COUNTERPARTS. For the convenience of the parties
and to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
SECTION 6.09. CERTAIN REMEDIES; SEVERABILITY. It is specifically understood
and agreed that any breach of this Agreement by any of the parties hereto
(including any breach of Article II by Xx. Xxxxx, Xx. Xxxxx or Xx. Xxxxxxxx)
will result in irreparable injury to the aggrieved party, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy for such breach and that, in addition to any other remedy it may
have, such aggrieved party shall be entitled to enforce the specific performance
of this Agreement by the breaching party and to seek both temporary and
permanent injunctive relief, without the necessity of proving actual damages,
but without limitation of their rights to recover such damages. In case any of
the provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, any such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had been limited or modified (consistent with its
general intent) to the extent necessary to make it valid, legal and enforceable,
or if it shall not be possible to so limit or modify such invalid, illegal or
unenforceable provision or part of a provision, this Agreement shall be
construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement. Notwithstanding the
foregoing, however, each of Xx. Xxxxx, Xx. Xxxxx and Xx. Xxxxxxxx acknowledges
and agrees that the provisions of Article II are reasonable in context and
scope, are a material condition to Natrol's willingness to purchase his interest
in Prolab and are intended to be and shall be enforced to the full extent set
forth herein.
SECTION 6.10. AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified except by a writing duly and validly executed by each Stockholder and
Natrol. Any party hereto may waive any covenant or condition intended for its
benefit in its discretion, but delay on the party of any party in exercising any
right, power or privilege hereunder shall not operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege. The rights and remedies of any party arising out of or
otherwise in
35
respect of any inaccuracy in or breach of any representation or warranty, or any
failure to perform or comply with any covenant or agreement, contained in this
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy,
breach or failure is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this Agreement (or
in any other agreement between the parties) as to which there is no inaccuracy,
breach or failure.
36
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the date set forth above.
NATROL, INC.
By: /S/ XXXXXX XXXXXXX
-----------------------------------
Name: Xxxxxx Xxxxxxx
Title: President and Chief Executive
Officer
PROLAB NUTRITION, INC.
By: /S/ XXXXXX X. XXXXX
-----------------------------------
Name: Xxxxxx X. Xxxxx
Title: President
STOCKHOLDERS:
/S/ XXXXXX X. XXXXX
-----------------------------------
Xxxxxx X. Xxxxx
S/S XXXX XXXX XXXXX
-----------------------------------
Xxxx Xxxx Xxxxx
/S/ XXXXXX XXXX
-----------------------------------
Xxxxxx Xxxx
37
/S/ XXXXXX X. XXXXXXXX, XX.
-----------------------------------
Xxxxxx X. Xxxxxxxx, Xx.
38
